Source > Labour Hub
A combination of inflation reaching levels not seen since 1990 and stagnant wage increases, particularly among public sector workers, means that many people are being thrust into a catastrophic cost of living emergency from which there seems little prospect of respite. The backdrop to this crisis is a rudderless government, whose leadership contenders promise tax cuts that disproportionally benefit the richest in our society, while attempting to land punches on the rail unions as a warning shot to ordinary working people across the UK.
During the pandemic, public sector workers were rightly praised for the vital work they carried out in their communities. We saw the true value of the work undertaken by low-paid workers in the medical, care and cleaning sectors. We also saw the hypocrisy of a Tory government who was prepared to clap for carers and NHS workers, but refused to give them a decent pay rise – all while they trousered significant salary rises and handed out contracts to their mates.
A quadruple whammy of rising energy, food, housing and transport costs threatens to plunge many previously reasonably comfortable families into financial stress. The start of this impact is already being evidenced through a fall in donations to food banks due to regular providers feeling the pinch.
Energy Price Rises
In February 2020 the energy price cap, which will impact around 22 million households, stood at £1,042. It currently stands at £1,971 an increase from £87 a month to £164 a month. This increase has already led to many people choosing between heating and eating. However, there is far worse to come. The price cap, which strictly isn’t a cap as such, more a set rate for a given amount of energy consumed, is updated every six months, in April and October. The announcement for the October price cap is due on 26th August, but is forecast by a well-respected energy consultancy firm to be around £3,244, increasing to over £3,363 in early 2023. This will lead to typical monthly bills of around £270. Another energy consultancy firm predicts an even higher cap of £3,420 in October and a further increase to £3,850 in January if OFGEM’s preference for a price cap change to every three months comes into effect.
Given that the April price cap rise has yet to be fully felt, as the timing of it coincided with most people turning off their heating, these additional increases will be a massive financial shock to many families across the UK. Further, while those paying by direct debit will be able to spread their energy costs over the year, households using pre-payment meters, already on extortionate tariffs, will instantly feel the impact of higher prices. I have written previously about the pre-pay rip-off which affects 4.4 million electric and 3.4 million gas customers across the UK. Many of these households are on low incomes and it is difficult to see how these people are going to cope. One energy consultancy firm predicts that more than half the country could be pushed into fuel poverty during the coming winter.
This real figure could actually be far worse, as bizarrely in England you cannot be classed as being in fuel poverty if you live in a property that has an energy efficiency rating of ‘Class C’ or better. In 2020 2.6 million households in England were in the lowest two income deciles, but were not deemed to be in fuel poverty because their property had a ‘Class C’ or better energy efficiency rating. It is likely that many of these households will face extremely serious financial difficulties in the coming months if no more government help is forthcoming.
Evidence from energy company CEOs
Previous energy price rises have already had an impact on vulnerable customers. In evidence given to the House of Commons Business, Energy and Industrial Strategy (BEIS) Committee in April 2022, Simone Rossi, CEO of EDF Energy, said that they have seen data showing that their 10% most vulnerable customers will go from spending £1 in every £12 of their income on energy bills to spending £1 in every £6. Chris O’Shea CEO of Centrica said that 10% of their customers are late in payments. This figure represents around 716,000 customers who are on average £440 in debt. Keith Anderson CEO of Scottish Power, giving evidence about prepayment customers said: “Come October (2022) that is going to get truly horrific. It has got to a stage now where I honestly believe that the size and scale of this are beyond what I can deal with. It is beyond what I think the industry can deal with.” You can read the full evidence from the energy company CEOs here.
It was also accepted that prepayment customers, already on poor-value tariffs, would feel the pinch the moment the energy cap rises come into force, whereas those who pay on receipt of their bill or by direct debit, will feel the impact a few months later or have the impact smoothed by paying the increase over the year. We also heard one of the CEOs, Keith Anderson, state that people on prepayment meters pay more than other customers and that the current situation where those that can least afford it pay the most for their energy was “perverse”.
The prospect of vulnerable customers dying in their homes during the upcoming winter was raised with the energy company CEOs and they were asked if they were satisfied that their internal systems were adequate in flagging and dealing with these customers. Their response was not entirely reassuring. They stated that maybe they could look at a way of monitoring customers who have not recharged their payment meter for an unusually long period of time – known in the industry as ‘self-disconnecting’. They also said that they have a priority services register to assist vulnerable people, but that this register does rely on being told by the customer or other agencies such as Citizens Advice or food banks.
So what help has the government offered so far?
£400 off this winter’s energy bills through the Energy Bills Support Scheme – this will be paid in monthly instalments, starting in October with a £66 discount applied to their bill, rising to £67 in December with the final payment in March 2023. This discount will not have to be repaid and is an updated package of support from that originally announced in February which was a £200 ‘discount’ and was to be repaid over five years. There have been concerns about how this discount will reach vulnerable customers such as the estimated 585,000 people who pay their energy bills as part of their rent. There is currently no obligation on landlords who pay energy suppliers on behalf of their tenants, to pass on the benefits of the scheme. There are also concerns about those who use legacy (i.e. not smart) prepayment meters, in terms of theft or loss of vouchers. In a previous voucher scheme, 30% of households did not redeem their vouchers. Further, there are also concerns that the money provided by the scheme will be used to pay down energy bill debts, rather than help them access energy.
A £650 cost of living payment for those on means-tested benefits such as Universal Credit and Pension Credit. This will be paid in two lump sums; the first was in July, and the second payment will be in the autumn.
A £300 Pensioner cost of living payment. This payment will go to the 8 million pensioner households who receive the Winter Fuel Payment.
A £150 Disability cost of living payment. This is payable to the 6 million people who receive various disability allowances or Personal Independence Payments.
A £150 Council Tax rebate for those people living in Band A-D households. This was applied in April 2022.
£1 billion Household Support Fund for households not eligible for other kinds of help or who need further support. This fund will be distributed by local authorities.
However, since these measures were announced, wholesale gas prices have continued to rise and this October’s energy price cap is expected to be £450 higher than what the Government’s support package was based on. With energy prices set to rise further, the current measures will make a dent in bills, but will not offset the total cost or take into account ongoing high energy prices set to last throughout 2023 and beyond.
As I wrote in ‘End the Pre Pay Energy Rip Off’ back in November 2020, it is just not right that the richest in our society pay the lowest rates for their energy, while those on the breadline get lumped onto the most expensive tariffs, creating a vicious circle of financial hardship. I suspect there are very few, if any, MPs who have ever experienced life with a prepayment meter. If there were, I don’t believe this inequality would still exist.
It’s not just energy prices that are putting pressure on households across the UK. Food prices have increased significantly and the average annual grocery bill is set to increase by £380, from £4,580 up to £4,960. The price of pasta has gone up by around 40%, teabags by 17% and coffee by 14%. There are a number of factors involved in these price increases, including higher shipping costs, but it is noticeable that drought and heatwaves have had a significant impact. Climate change will only make these more likely in the future. The price of milk rose by 7% in the year to March 2022 and is forecast by some analysts to rise to £1.70 for four pints of milk this year.
Transport price rises
Regulated rail ticket prices increased by 3.8% in March 2022. However, other fares such as advance fares, normally the best value, have gone up by 8.8%.
Bus fares rose 61% between 2009 and 2019. This was an even greater increase than rail ticket prices, which rose 50% over the same period. A £2 price cap to start in the autumn has been announced by Labour mayors of West Yorkshire, Greater Manchester and Liverpool. A £2 price cap, again starting in the autumn, for all bus journeys up to eighty miles was announced by 10 Downing Street. However, it is unclear if a new Prime Minister will proceed with this policy – and the Department for Transport have yet to confirm either way.
Private rental prices in England (excluding London) increased by 3.3% in the 12 months to April 2022. This is the highest yearly increase since records started being collated in 2006. Increases in social housing rents are capped by the CPI inflation figure +1% from the previous September. For 2022-23 this figure was 4.1%. As interest rates are back on the rise, mortgage rates have also risen for borrowers on variable rate mortgages and fixed-rate mortgages. The Nationwide building society increased rates on its fixed-rate mortgages by up to 0.4% and the HSBC bank are raising their main fixed rate mortgages by up to 0.5%.
What can be done?
The government has provided substantial support, including a £15 billion energy bill rebate package, worth up to £550 each for around 28 million households. However, with energy price cap estimates going up by the week, it is clear that this support will not be anywhere near enough to avoid millions of households falling into fuel poverty and people making the stark choice between heating and eating. Many households who have never previously experienced financial difficulties will do so for the first time as they face a perfect storm of rising prices combined with stagnant wages and there is the real prospect of people dying in their homes due to the cold.
Tragically, at a time when experts are giving grave warnings about the looming emergency, we have two candidates campaigning to be the next Prime Minister who seem completely out of touch with the pressing concerns of the people they will soon be representing. Sunak and Truss seem locked in an arms race to send the most migrants to Rwanda or dishing out the biggest tax cuts to the rich, while their solutions to the energy crisis – slashing VAT on energy bills (Sunak) or suspending green energy levies (Truss) have been described as “trivial” by Martin Lewis of MoneySavingExpert.com and in the case of Truss slammed as “nonsensical” by Good Energy’s Chief Executive Nigel Pocklington. Liz Truss, the current favourite to be our next PM, has already ruled out a further windfall tax on the energy companies.
Further, while the government belatedly introduced an energy profits levy (they refused to call it a ‘windfall tax’) which is expected to raise around £5 billion, they have at the same time gifted the oil and gas sector a 91% tax relief rate on further oil and gas extraction investment. Meanwhile, energy companies make record profits: BP made profits of £6.9 billion between April and June, with Shell making profits of £9.5 billion in the same three month period. While many households across the UK are facing the prospect of a severe financial shock, these companies are so awash with money they are buying back their own shares and shelling out dividends. We are definitely not all in this together.
One option that was discussed by MPs and the energy company CEOs during their evidence to the BEIS committee was the introduction by the government of a deficit fund, where anyone deemed to be in fuel poverty or vulnerable, and this importantly would include prepayment meter customers, would have £1,000 taken off their bill and put into a fund which can be repaid over a 10 year period by the whole customer base, or could be funded wholly or partially by the government.
The second step would be to introduce a ‘social tariff’ targeted to discount energy prices for those in poverty or on a prepayment meter. This would be likely to lead to the removal of the current fixed price caps, replaced by a relative cap to the lowest price.
Another proposal was the reduction in demand through better home insulation. The UK has the worst insulated homes in Europe and Michael Lewis, CEO of E.ON stated that the UK has no coherent approach to upgrading the UK housing stock. The last initiative, the ‘Green Homes Grant’, was launched in September 2020, but was axed in March 2021 after reaching just 10% of the 600,000 homes Rishi Sunak promised would be improved.
With analysts forecasting that the energy crisis will last into 2023 and beyond, there need to be long-term fixes to the crisis. It is shameful that while there are people having to choose between heating and eating, energy companies are posting record profits. However, the current government is clearly averse to any further windfall taxes which could be used to help ease the burden for millions of people across the UK. Yet again this Conservative government are prioritising profits over people and we are not likely to see any notable change in policy until we have a change of government.
In fairness, any government would struggle with the sheer scale of the problem, but other countries have implemented policies that put people first. France capped electricity price rises at 4%, while Spain will introduce free rail travel across much of its rail network from September until the end of the year. Germany has introduced a 9 Euro a month scheme on all modes of city and regional transport. Italy has introduced a tax credit of up to 110% for households who improve their homes with green renovations such as insulation, solar panels, or heat pumps. The UK needs a government who are prepared to take similar steps and puts people before profits.
What help is out there and how can you reduce your bills?
Below are some links that either signpost you to sites that check you are getting all the benefits to which you are entitled, where to get help if you are struggling to pay your bills and tips on how to reduce your energy consumption.
Energy Saving Tips – Money Saving Expert: https://www.moneysavingexpert.com/utilities/energy-saving-tips/
Turn2Us – What happens if I can’t pay my bills? https://www.turn2us.org.uk/Benefit-guides/Fuel-Poverty/What-happens-if-I-cannot-pay-my-bills
CCW – Help with my water bills: https://www.ccwater.org.uk/households/help-with-my-bills/
The Money Edit – 17 hacks to cut your energy bills: https://www.themoneyedit.com/household-bills/cut-energy-costs
OFGEM – getting help if you can’t pay your energy bills: https://www.ofgem.gov.uk/information-consumers/energy-advice-households/getting-help-if-you-cant-afford-your-energy-bills
Joseph Rowntree Foundation: Going Without: deepening poverty in the UK July 2022 https://www.jrf.org.uk/report/going-without-deepening-poverty-uk
All Party Parliamentary Group on Poverty: In Work Poverty July 2022 http://www.appgpoverty.org.uk/wp-content/uploads/2022/07/APPG_Poverty_in_work_poverty_FINAL.pdf
Commons Library – Fuel Poverty in the UK May 2022: https://commonslibrary.parliament.uk/research-briefings/cbp-8730/
Energy Company CEO evidence to the House of Commons BEIS Committee April 2022: https://committees.parliament.uk/oralevidence/10102/default/
Julian Vaughan was Labour Parliamentary candidate for NE Bedfordshire in 2017 and 2019. and a Labour NEC candidate in 2020. He is a member of NE Bedfordshire CLP and ASLEF and blogs here. This post originally appeared here. Twitter: @julian_vaughan_